When Is Cancelled Debt Considered Income?

When Is Cancelled Debt Considered Income?

If you owe money to someone and are unable to pay, your creditor may cancel, or forgive, the money you owe. In many instances, the Internal Revenue Service treats this cancelled debt as taxable income. In fact, if the value of the debt is $600 or more, you will receive Form 1099-C from the creditor. (The creditor will provide the IRS a copy of that same form.)

Cancelled Debt as Taxable Income

In general, cancelled debt is NOT considered taxable income if:

The cancelled debt is a bequest, inheritance or gift

If your student loan debt was cancelled in exchange for your work in a certain profession